Experts worry about price rise post GST

Experts worry about price rise post GST

Traders stage a a demonstration to press for the passage of GST Bill in Parliament, at Jantar Mantar in New Delhi, in December 2015.

There is some speculation about the fate of the Goods and Services Tax (GST) Bill getting passed anytime soon, given, experts opine that the cost of all services, ranging from doctor’s fees to booking a train ticket, may become more expensive and may prove to be unpopular.

“The GST would definitely have some impact on prices especially for various services rendered in the economy,” says Bimal Jain, taxation expert at A2Z Taxcorp LLP. Experts are of the view that since 66% of India’s GDP comes from the services sector, costly services might cost the government politically. They explain that as the tax on services go up from the present 15% to 18%, the services inflation would come into the system, which, besides affecting the common’s man already fragile pocket, would also impact the RBI’s sensitivities to price rise.

While it is true that GST would make services costlier, the prices of manufactured goods would, however, fall by a good margin. Under the GST regime, taxes on manufactured goods would come down from over 26% to 18%, but manufactured goods form less than a quarter of India’s GDP. While it is also true that lower tax rates on goods would boost manufacturing in the country, which “Make in India” eventually desires, but it is the services (inflation) that might force the government to go slow on this game changing legislation. GST aims to subsume all indirect taxes into one single (GST) rate, thereby making India as one unified market. It would simplify India’s complicated indirect-tax architecture by removing many anomalies of which double taxation hurts the most. It would also simplify tax compliance and plug leakages in the system. “With the GST in place, it would be quite difficult to run a parallel economy in the country,” says Jain.

Although the Congress and the BJP are on the same page as far as the rate of GST (18%) is concerned, but Congress insists that such a rate should be the part of the constitutional amendment itself. Many fear that such an outcome would make it quite difficult to alter the GST rate in future. Changing the GST rate would require going to Parliament again, which will be a time consuming process. The BJP feels that the power to determine the GST rate should better be left to the GST council having representations from the states.